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Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming

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  • Engle Warnick James C.

    () (McGill University)

  • Escobal Javier

    () (Group for the Analysis of Development (GRADE))

  • Laszlo Sonia C.

    () (McGill University)

Abstract

While the effect of risk aversion on farmers' decision-making has long been documented, far less is known about the effect of ambiguity aversion. We argue that ambiguity aversion is just as relevant to their decision-making process because they are uncertain about the yield distributions generated by new technologies. By experimentally measuring risk and ambiguity aversion in rural Peru, we provide new evidence on the role of ambiguity aversion on farm decisions in developing countries: ambiguity aversion, not risk aversion, reduces the likelihood that farmers plant more than one variety of their main crop.

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  • Engle Warnick James C. & Escobal Javier & Laszlo Sonia C., 2011. "Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-56, November.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:68
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    Cited by:

    1. C. Bram Cadsby & Jim Engle-Warnick & Tony Fang & Fei Song, 2014. "Psychological Incentives, Financial Incentives, and Risk Attitudes in Tournaments: An Artefactual Field Experiment," Working Papers 1403, University of Guelph, Department of Economics and Finance.
    2. Jouvet, Pierre-André & Le Cadre, Elodie & Orset, Caroline, 2012. "Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector," Energy Economics, Elsevier, vol. 34(1), pages 45-53.
    3. Jim Engle-Warnick & Sonia Laszlo, 2017. "Learning-by-doing in an ambiguous environment," Journal of Risk and Uncertainty, Springer, vol. 55(1), pages 71-94, August.
    4. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
    5. Elodie Le Cadre & Caroline Orset, 2010. "Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector," Working Papers 2010/03, INRA, Economie Publique.
    6. Tamini, Lota Dabio, 2012. "Optimal quality choice under uncertainty on market development," Working Papers 148589, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    7. Hill, Ruth Vargas & Maruyama, Eduardo & Viceisza, Angelino, 2012. "Breaking the norm: An empirical investigation into the unraveling of good behavior," Journal of Development Economics, Elsevier, vol. 99(1), pages 150-162.
    8. Barham, Bradford L. & Chavas, Jean-Paul & Fitz, Dylan & Salas, Vanessa Ríos & Schechter, Laura, 2014. "The roles of risk and ambiguity in technology adoption," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 204-218.
    9. Ihli, Hanna Julia & Chiputwa, Brian & Musshoff, Oliver, 2013. "Do Changing Probabilities or Payoffs in Lottery-Choice Experiments Matter? Evidence from Rural Uganda," Discussion Papers 158146, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    10. Pan He & Marcella Veronesi & Stefanie Engel, 2016. "Consistency of Risk Preference Measures and the Role of Ambiguity: An Artefactual Field Experiment from China," Working Papers 03/2016, University of Verona, Department of Economics.
    11. Cardenas, Juan Camilo & Carpenter, Jeffrey P., 2010. "Risk Attitudes and Well-Being in Latin America," IZA Discussion Papers 5279, Institute for the Study of Labor (IZA).
    12. Kaywana Raeburn & Jim Engle-Warnick & Sonia Laszlo, 2016. "Determinants of Food Consumption Choices: Experimental Evidence from St. Kitts," CIRANO Working Papers 2016s-43, CIRANO.
    13. Dean Spears, 2013. "Poverty and probability: aspiration and aversion to compound lotteries in El Salvador and India," Experimental Economics, Springer;Economic Science Association, vol. 16(3), pages 263-284, September.
    14. Cardenas, Juan Camilo & Carpenter, Jeffrey, 2013. "Risk attitudes and economic well-being in Latin America," Journal of Development Economics, Elsevier, vol. 103(C), pages 52-61.
    15. Charness, Gary & Viceisza, Angelino, 2011. "Comprehension and risk elicitation in the field: Evidence from rural Senegal," IFPRI discussion papers 1135, International Food Policy Research Institute (IFPRI).
    16. repec:kap:jrisku:v:54:y:2017:i:3:d:10.1007_s11166-017-9262-2 is not listed on IDEAS
    17. Ihli, Hanna Julia & Chiputwa, Brian & Musshoff, Oliver, 2016. "Do Changing Probabilities or Payoffs in Lottery-Choice Experiments Affect Risk Preference Outcomes? Evidence from Rural Uganda," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(2), May.
    18. Jim Engle-Warnick & Diego Pulido & Marine de Montaignac, 2016. "A Comparison of Survey and Incentivized-Based Risk Attitude Elicitation," CIRANO Working Papers 2016s-40, CIRANO.
    19. Fairley, Kim & Weitzel, Utz, 2017. "Ambiguity and risk measures in the lab and students’ real-life borrowing behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 67(C), pages 85-98.
    20. Kaywana Raeburn & Jim Engle-Warnick & Sonia Laszlo, 2016. "Resolving Ambiguity as a Public Good: Experimental Evidence from Guyana," CIRANO Working Papers 2016s-41, CIRANO.

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